Gil, I'm not talking about people building models for self edification.
Neither am I, and there are real, live, policy-discussing economists who don't assume perfect competition when applying game theoretic analysis. In any case, it is not a requirement of game theory that one *assumes* any particular structure of competition--to the contrary, as I said, game theory is precisely equipped to handle the gamut of departures from perfect competition-- and game theory itself is not to blame for the fact that some economists apply it inappropriately. The damage-causing economists would do their damage with or without the use of game theory.
Gil
I'm talking about real, live economists, at Berkeley and at the Kennedy School at Harvard, assuming competiton in electric generation to influence policy. They are advising, for example, the governor of California to the effect that competition will work in electric generation. The governor seems to be buying it but the legislature so far is skeptical.
Real economists do real damage. And then you have charlatans like Vernon Smith, turning his Nobel into cash via destructive and stupid policy advice.
Gene Coyle
Gil Skillman wrote:
At 12:28 PM 2/2/2005, you wrote:
Micro economists using game theory ASSUME competition and then use game
theory to see how things work out -- which turns out to be competition.
If by "competition" you mean "strategic interaction," then of course they
do, since game theory is precisely a theory about outcomes of strategic
settings. If by "competition" you mean a certain *form* of competition,
such as perfect competition, then of course they don't. As a whole, Micro
economists applying game theory to market settings consider the whole
spectrum of competitive structures, from duopoly to (virtually) perfect
competition and from bilateral monopoly to (virtual) bilateral competition.
In my piece about why electric deregulation can't work I read a lot of
(and quoted) Lester Telser. He does NOT assume competition and
discovers that collusion or cooperation is necessary for good outcomes
for society. Regulation of the collusion or cooperation is required for
that good outcome.
Yes, that would be an example where it would not be appropriate to assume
perfect competition.
Game theory as used by economists is the same game as neo-classical
micro, which a game of hide the ball.
I don't see any coherent basis for this claim. For example, where is the
"hide the ball" aspect in evolutionary game theoretic models of
institutional formation? In the applications of strategic bargaining
analysis to the prospects for and effects of collective bargaining? In
Matthew Rabin's analysis of fairness norms in strategic
interactions? (Etc.) These are all instances of "game theory as used by
economists."
Gil
Gil
